Global LNG investment and trade patterns An infrastructure companys - - PowerPoint PPT Presentation

Global LNG investment and trade patterns

An infrastructure company’s perspective IEF – Industry Advisory Committee December 9, 2015

1

ENAGAS – 45 YEARS OF EXPERIENCE

2

Technical Manager

• f Spain's Gas System

European Union-Accredited Independent TSO Natural Gas Infrastructure Leader Our technological skills, expertise, leadership and experience in managing gas infrastructure development, operations and maintenance, combined with our sound financial structure, position us as a leading international player. Top Natural Gas Transmission Company in Spain

A Midstream Company

ENAGAS – OUR CURRENT MARKETS

3 Mexico

TLA Altamira LNG Terminal Soto La Marina Compressor Station Morelos Gas Pipeline

Peru

Transportadora de Gas del Perú (TgP) Compañía Operadora de Gas del Amazonas (Coga) South Peru Gas Pipeline

Chile

GNL Quintero LNG Terminal

Greece, Albania and Italy

Trans Adriatic Pipeline (TAP) LNG Storage Transmission

What we do

Sweden

Swedegas

ENAGAS – OUR LNG ACTIVITIES

4

4 2

Spain Mexico Chile

3 2 3 6 5 5 1 1 4

TLA Altamira LNG Terminal (40%) 300,000 m3 LNG 800,000 m3 (n)/h GNL Quintero LNG Terminal (majority shareholder) 334,000 m3 LNG 625,000 m3 (n)/h Canary Islands LNG terminals 300,000 m3 LNG Barcelona LNG Terminal 760,000 m3 LNG 1,950,000 m3 (n)/h Huelva LNG Terminal 619,500 m3 LNG 1,350,000 m3 (n)/h Cartagena LNG Terminal 587,000 m3 LNG 1,350,000 m3 (n)/h El Musel LNG Terminal 300,000 m3 LNG 800,000 m3 (n)/h

We have constructed 13 LNG Storage Tanks over the past ? years

• r

Over the years we have/Enagas has constructed 13 LNG Storage Tanks

Global leader in number of LNG receiving terminals

8

LNG terminals

(+ 2 more in development)

Saggas LNG Terminal (30%) 600,000 m3 LNG 1,000,000 m3 (n)/h

LNG MARKET

Currently gloomy but growing and becoming more relevant

(Industry adaption required)

Although the short-term paints a gloomy picture of an oversupplied market, the LNG market will gain relevance in the long- term if industry players play are active in creating demand while adapting to a low-cost highly-flexible environment

5

• Low prices, driven by demand deceleration and oil price collapse (especially in Asia), challenging LNG supply economics
• New wave of LNG supply under construction (US; AUS) increasing price pressure under uncertain demand growth, especially in Asia
• Europe, as the last resort LNG market…but challenges remain: Weak demand; Russia export strategy
• New glut of planned LNG capacity looking for demand beyond 2020
• LNG supply has grown faster than any other source of gas – at an average 7% per year since 2000, achieving a 33% share of

global gas trading

• Supply abundance and diversity should help to enhance a true global market, increasing “connectivity” and liquidity, while arising as

a growing relevant tool for security of supply

• Need for creating demand, beyond big markets such as Europe or China: new importing countries and new sectors (i.e.: bunkering)
• Need for adapting infrastructures and business models to a low-cost highly-flexible environment

Currently gloomy… but growing and becoming more relevant… if the industry adapts

INCREASING RELEVANCE OF INFRASTRUCTURE COSTS

Infrastructure cost reduction strategies are key factors for gaining competitive advantages in the market place and a break even element under the current context of prices

6

0% 20% 40% 60% 80% 100%

CANADIAN WEST COAST US WEST COAST US GULF COAST (Cape Good Hope) US GULF COAST (Panama Channel) WEST AFRICA AUSTRALIA BROWNFIELD ASUTRALIA GREENFIELD EAST AFRICA GREENFIELD Upstream & Shipping Infrastructures

0% 20% 40% 60% 80% 100%

CANADIAN WEST COAST US WEST COAST (Panama Channel) US GULF COAST WEST AFRICA AUSTRALIA BROWNFIELD ASUTRALIA GREENFIELD EAST AFRICA GREENFIELD Upstream & Shipping Infrastructures

0% 20% 40% 60% 80% 100% 120%

CANADIAN WEST COAST US WEST COAST US GULF COAST (Cape Good Hope) US GULF COAST (Panama Channel) WEST AFRICA AUSTRALIA BROWNFIELD ASUTRALIA GREENFIELD EAST AFRICA GREENFIELD

0% 20% 40% 60% 80% 100% 120% 140% 160%

CANADIAN WEST COAST US WEST COAST (Panama Channel) US GULF COAST WEST AFRICA AUSTRALIA BROWNFIELD ASUTRALIA GREENFIELD EAST AFRICA GREENFIELD

COSTS FOR LNG DELIVERIES TO JAPAN INFRASTRUCTURE COSTS VS CURRENT MARKET PRICES (JAPAN) COSTS FOR LNG DELIVERIES TO NW EUROPE INFRASTRUCTURE COSTS VS CURRENT MARKET PRICES (NW EUROPE)

~7.1 USD/MMBTU ~5.6 USD/MMBTU

GLUT LIQUEFACTION CAPACITY LOOKING FOR NEW DEMAND

The new market context requires a transformation of liquefaction plant business models geared towards low-cost highly-flexible models, deeper pockets and higher engagement in demand creation.

7

Supply abundance and slowing uncertain demand pose new challenges for liquefaction plants Huge competitive pressure for planned/proposed plants Buyer’s market, high spot/short term liquidity: lower need for long-term off-take contracts

+45% of existing capacity by end-2015

+x12 actual needs in 2025

CHALLENGES

PLANNED CAPACITY 855 Mtpa

(sources: IGU, BG)

CAPACITY UNDER CONSTRUCTION 132 Mtpa

(sources: IGU, BG)

+45% of existing capacity by end-2015

48% 40%

RELEVANT UNTAPPED DEMAND IN NEW IMPORTING COUNTRIES

New business models/infrastructures needed to adapt to higher risk environments – FSRUs (+ active involvement in downstream activities) to play a relevant role enabling demand creation in the short-term

8

Growing prospects, but high market risks Need for adaptation: The emerging role of FSRU 5 10 15 20 25 30 35 40 45 50 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 Number of countries ExporCng countries ImporCng countries

5 2 6 8 2 7 4 7 4 4 1 1 2 2 1 2 4 3 3 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 floaCng

• nshore

PLANNED TERMINALS IN NEW IMPORTING COUNTRIES

(Source: IGU, BG)

NEW LNG TERMINALS IN THE LAST DECADE

(Source: IGU)

GROWTH OF EXPORTING AND IMPORTING COUNTRIES

(Source: IGU, BG)

OPENING NEW CONSUMING SECTORS

Bunkering: the low-hanging fruit

Bunkering is a low-hanging fruit, useful in helping the creation of new sectors demanding LNG over the long-term, but current prices and chicken-and-egg challenges require strengthened regulations and cooperation along the value chain

9 EMISSION CONTROL AREAS – ECA (Source: IMO) MARITIME FUEL PRICES (Source: DNV-GL)

Favorable context for LNG Price convergence

The environmental driver… The price (+ other) challenge (s) …

THE EMERGING ROLE OF NON-NOC PLAYERS IN CHINA

Emerging non-NOC players could play a relevant role in fostering demand growth but need to partner with international players – LNG terminal developers are needed to ensure adequate development/operation of selected assets

10 REGASIFICATION CAPACITY (MTPA) UNDER CONSTRUCTION AND PLANNED

(Sources: IGU, BG, IHS, projects informaCon)

LNG DEMAND PROSPECTS, REGAS CAPACITY AND CONTRACTED SUPPLY

(Sources: IGU, BG, IHS, projects informaCon) New BIG guys in the market… but market challenges lie ahead

Barcelona Sagunto Cartagena Huelva Sines Mugardos Bilbao South Hook Dragon Isle of Grain Teesside GasPort Fos Tonkin Fos Cavou Montoir de Bretagne Zeebrugge Gate Panigaglia Toscana Adriatic Revithoussa Marmara Ereglisi Aliaga Hadera Gateway Klaipeda Swinoujscie El Musel

EUROPE

Balancing the global market while diversifying supply

New infrastructures in Europe are needed to enhance the diversification of supply, but with a new approach to

• vercome commercial drawbacks: enhance more integration along the value chain; targeted EU support.

11

High spare LNG import capacity… but there is a need for additional targeted infrastructures: most of this spare capacity does not provide relevant supply diversification However, most of these new infrastructures are ‘sub-commercial’: weak demand; Russian gas competitiveness

exiting LNG terminal dependence on Russian gas 100-75% dependence on Russian gas 75-25 % dependence on Russian gas < 25 % congested bottlenecks

Source: Own elaboraCon using data from: GLE; ACER; Gazprom; Energy Community; BP : Eurogas

CONCLUSIONS

Currently challenging market environment…

• The combination of demand weakness and supply growth positions LNG prices to likely remain low in the near future
• The current oversupply in the LNG market was not the consequence of a conscious strategy decision and may result in a major

value loss for some investors

• Consequently, at current prices new projects will struggle to get off the ground

but growing and becoming crucial for the future of gas

• There is an opportunity for the global industry to develop more efficient, transparent and competitive LNG markets, which

would indeed the best way to support future growth for gas consumption. § The rise of more diversified pricing/contractual structures is positive and points to increased flexibility and maturity § Gas trading conditions in Asia are steadily improving both in terms of liquidity and price transparency. More mature spot markets can provide the robust platform for the development of future markets § In the meantime, the value chain will have to quickly adapt to this new environment to actively contribute to demand creation and succeed amidst fierce competition § Infrastructure cost reduction arises as a key competitive advantage due to its growing weight in the total cost § Governments will have to make an increased effort in the coming years in order to support the development and reinforcement of both their physical and regulatory gas infrastructures

12

Thank you for your attention!

www.enagas.es